CPEC emerging opportunities likely to drive Pakistan’s GDP growth

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Developing an understanding about the nature and economic drivers of Pakistan is crucial to critical thinking about its impact on the economy. However, one needs to look at a more complete picture. The purpose of this article is to analyze the effects of investments in various avenues on the economic growth. Pakistan direly needs massive investment in energy and transport infrastructure projects to cut blackouts, boost growth and create jobs.

There is no doubt that the country’s potential is under-utilized at the moment and in the near future, through devising right policies, Pakistan can emerge as one of the fastest growing countries in the region. Currently, Pakistan is at 65th place with respect to the FDI received at the global level. It must shift its focus from aid and loan reliance to economic investment packages for the foreign investors in the form of repatriation of profits, dividends and capital gains.

Pakistan has emerged as one of the global top 10 improvers last year as our position in the ‘Doing Business’ global rankings improved to 144 out of 190 economies as a result of the reforms announced by the government. Pakistan had announced a three-year road map to improve its global ranking on doing business. Being consistent with that, Pakistan completed three reforms in the past year in registering property, getting credit and trading across borders. This is a vital improvement as the progress in business will have healthy effects on the economy and it would attract much more foreign investment in the country as well. Pakistan is an investor-friendly country and provides a sound investment business destination for both local and foreign investors. The improvements discussed above provide important building blocks for a more efficient business environment that would encourage local businessmen a lot.

After being the frontline state in ‘war against terror’ for last 17 years, Pakistan has faced a myriad of challenges in the form of political instability, rising security concerns and stagnant economy. Luckily, things are changing now due to the geostrategic advantage of the country’s global positioning. Pakistan is situated at the crossroads of South Asia with an easier access route to the Central Asian Republics (CARs) and China through the western border. Increased Chinese investment in Pakistan has been a confidence booster for the European and other Western countries wishing to invest in Pakistan who were previously uncertain regarding the future stability.

CPEC benefits

Increasing economic cooperation with China under the China-Pakistan Economic Corridor could help boost growth of small and medium enterprises through joint ventures between businessmen of the two countries, and modernize existing SMEs through a transfer of technology. The development of the proposed industrial zones along the trade route will offer massive opportunities for investment.

Both domestic and Chinese businessmen involved in joint small to medium sized ancillary businesses are expected to emerge after the completion of the corridor project. There is a wide scope for joint ventures between Pakistani and Chinese SMEs, especially in the fields of logistics, trucking, warehousing, fisheries, horticulture, minerals, food processing, construction, dairy and livestock, ICT and allied service, light engineering, apparel, and cold storage and supply chain business, etc. The corridor offers enormous opportunities for industry-led economic growth in Pakistan if we are able to take advantage of the emerging opportunities.

The CPEC could go a long way towards alleviating Pakistan’s long-standing supply-side bottlenecks, lifting its long-term potential output and improving power supply for exports. Transport infrastructure (roads, rail and port) will allow easier and low-cost access to domestic and overseas markets, promoting inter-regional and international merchandise trade. Services trade will also benefit from the increased trade traffic from China and the initiative would prove to be a catalyst for private business investment and boosting productivity.

In reality, to properly afford the CPEC projects that are being undertaken, the country will need to lift its exports by as much as 14% annually, boost its productivity, and give a large spur to private enterprise to get the wheels of domestic investment moving again. If the export slowdown was due to energy shortages, the availability of increased supplies should boost exports fetching higher foreign exchange revenues. Investment in energy and infrastructure will further result in incremental growth in GDP.

Energy management

For years, the matter of balancing Pakistan’s supply against the demand for electricity has remained a largely unresolved matter. Pakistan faces a significant challenge in revamping its network responsible for the supply of electricity. Due to an unrealistic power tariff, high inefficiencies, low payment recovery and the inability of the government to manage its subsidies mechanism that lead to a serious ‘circular debt’ issue which is becoming a barrier for future energy sector investment.

The economy is badly affected by electricity crisis with loss of huge capital. The solution to the current crisis lies in energy conservation at all level in the country. The use of alternate energy such as wind and solar power could be utilized to immediately reduce the shortages, while electricity projects from coal and large dam could provide a long-term solution to the electricity shortage. New investment in the field of oil and gas exploration will have to be attracted by offering incentives to the local and foreign investors. These incentives should be well thought out and based on a win-win theory. We have sufficient gas reserves which, if properly exploited, can give our economy a real break.

Based on the micro and macro-economic indicators, political stability and increases in foreign investment in Pakistan – a market of nearly 200 million people – the economy is predicted to further stabilize.Although growth in Pakistan has improved in FY2017 mainly on recovery in agriculture and manufacturing sectors, the government needs to address fiscal and external sector vulnerabilities that have reappeared with the wider current account deficit, falling foreign exchange reserves, rising debt obligations, and consequently greater external financing needs.

The writer is a Karachi-based freelance columnist and is a banker by profession. He could be reached on Twitter @ReluctantAhsan

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